MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings has upgraded Grupo KUO, S.A.B. de C.V.'s (KUO) Issuer Default Ratings (IDRs) as follows:
--Long-term Issuer Default Rating (IDR) to 'BB' from 'BB-';
--Long-term Local currency IDR to 'BB' from 'BB-';
--National scale long-term rating to 'A(mex)' from 'BBB+(mex)'.
The Rating Outlook is Stable.
In addition, Fitch has upgraded the following financial obligations ratings for KUO:
--USD250 million senior notes due 2017 to 'BB' from 'BB-';
--MXN700 million Certificados Bursatiles issuance due 2015 to 'A(mex)' from 'BBB+(mex)'.
The ratings upgrade is based on KUO's improved operating and financial profile, reflecting sound performance across its business portfolio during the recent economic cycle in conjunction with internal strategies to mitigate industry volatility. In addition, KUO's debt maturities for the following years are minimal and can be easily covered by internally generated funds. The rating actions incorporate Fitch's expectation that KUO's business operating and financial position will remain stable in the next years.
Credit metrics have improved due to higher operating results and stable debt levels. At year-end 2010, total debt to EBITDA improved to 2.3 times (x) from 2.6x a year ago, and EBITDA to interest expense was 3.1x, higher than 2.8x in 2009. Fitch anticipates KUO will maintain these ratios relatively stable in 2.0x and 3.1x, respectively in the absence of debt financed acquisitions. In recent years, debt service, Capex and working capital requirements have been financed through internal cash generation, divestitures and equity injections. Absolute debt levels have remained stable in the past year at USD374 million and were reduced USD81 million or almost 18% from year-end 2008. Management has established a net debt to EBITDA target for the long term between 1.5x and 2.5x; changes in the company's profile beyond this range could lead to future rating modifications.
KUO's ratings reflect its diversified revenue stream, hard currency generation with 46.5% of total sales coming from exports and subsidiaries located outside of Mexico (47.5% in 2009), and joint ventures (JVs) with international industry leaders. The ratings incorporate the company's exposure to volatility in demand and input costs related to commodity prices across business lines.
KUO's diversified portfolio allows it to mitigate industry cyclicality. 2010 EBITDA contribution by sector was 40% chemical, 38% consumer and 22% automotive, compared to 33%, 38% and 29% in 2009, respectively. The company's management strategy is focused in the development of new products in conjunction with entering new markets with attractive dynamics, while maintaining a competitive operating structure. Fitch expects that KUO's management will continue evaluating investment opportunities in order to strengthen its business portfolio.
During 2010 consolidated revenues and EBITDA grew 24% and 16% in dollar terms to USD1.8 billion and USD159 million, respectively, due to higher volumes and prices in the chemical sector as a result of industry recovery, as well as higher sales volume in the consumer division reflecting both, increased domestic volumes and prices and improved exports; in addition the company's results include the recently acquired 'Don Miguel' operations. The auto parts division revenues and EBITDA decreased 5% during the year despite higher input costs in the first half of 2010.
KUO's liquidity is robust and refinancing risk is low. At year-end 2010, KUO had cash and marketable securities of approximately USD70 million, total debt of USD374 million out of which only 1.2% was short-term. Moreover, debt maturities scheduled for 2011-2014 are manageable at only USD45 million in the period. For 2011 cash generation will be used primarily for working capital and capex investments for a joint amount of approximately USD125 million-USD130 million and Fitch expects no material changes in debt balances.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology', Aug. 13, 2010;
--'National Ratings Criteria', Jan. 19, 2011.
Applicable Criteria and Related Research:
National Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646
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